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Underreporting of Earnings and the Minimum Wage Spike

  • Tonin, Mirco

    ()

    (University of Southampton)

This paper documents a positive correlation within European labour markets between the proportion of full-time employees with earnings on the minimum wage and the extent of underreporting of earnings in the economy. Using a simple model of a competitive labour market, I show how this correlation can emerge as a result of the common dependence of both quantities on the strength of enforcement of fiscal regulation. This suggests that a high spike in the wage distribution at the minimum wage level is, in some contexts, an issue of fiscal enforcement, more than a labour market issue.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5942.

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Length: 19 pages
Date of creation: Aug 2011
Date of revision:
Publication status: published in: IZA Journal of European Labor Studies, 2013, 2:2
Handle: RePEc:iza:izadps:dp5942
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  1. Mirco Tonin, 2007. "Minimum Wage and Tax Evasion: Theory and Evidence," William Davidson Institute Working Papers Series wp865, William Davidson Institute at the University of Michigan.
  2. David Neumark & William L. Wascher, 2008. "Minimum Wages," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262141027, June.
  3. Tom Ahn & Peter Arcidiacono & Walter Wessels, 2011. "The Distributional Impacts of Minimum Wage Increases When Both Labor Supply and Labor Demand Are Endogenous," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 29(1), pages 12-23, January.
  4. Sara Lemos, 2006. "Minimum Wage Effects in a Developing Country," Discussion Papers in Economics 06/1, Department of Economics, University of Leicester.
  5. Tonin, Mirco, 2011. "Too Low to Be True: The Use of Minimum Thresholds to Fight Tax Evasion," IZA Discussion Papers 5509, Institute for the Study of Labor (IZA).
  6. Yuriy Gorodnichenko & Jorge Martinez-Vazquez & Klara Sabirianova Peter, 2009. "Myth and Reality of Flat Tax Reform: Micro Estimates of Tax Evasion Response and Welfare Effects in Russia," Journal of Political Economy, University of Chicago Press, vol. 117(3), pages 504-554, 06.
  7. Andreoni, J. & Erard, B. & Feinstein, J., 1996. "Tax Compliance," Working papers 9610, Wisconsin Madison - Social Systems.
  8. Bosch, Mariano & Manacorda, Marco, 2010. "Minimum Wages and Earnings Inequality in Urban Mexico," CEPR Discussion Papers 7882, C.E.P.R. Discussion Papers.
  9. Tito Boeri & Pietro Garibaldi & Marta Ribeiro, 2011. "The Lighthouse Effect And Beyond," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 57, pages S54-S78, 05.
  10. Colin C. Williams & Sara Nadin, 2012. "Tackling Undeclared Work in the European Union," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 13(2), pages 20-25, 07.
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